By Priya Raman, self-employment tax and worker classification
Work backward from the income you need to the rate you have to charge, accounting for taxes and the hours you actually bill.
This is a starting number for negotiation, not a guarantee. Your actual tax bill depends on your state and structure.
One number here comes straight from federal tax rules. The rest are inputs you set.
| Assumption | Value used here | Where it comes from |
|---|---|---|
| Self-employment tax rate | 15.3% of net earnings | Combined Social Security and Medicare self-employment tax under IRS Schedule SE rules |
| Net earnings adjustment | 92.35% of income before tax | The standard IRS adjustment applied before the 15.3% rate, per Schedule SE instructions |
| Target income and expenses | Your input | Set by you. Federal and state income tax on top of this are not included |
| Billable hours and weeks | Your input | Set by you. Most freelancers bill well under a 40-hour week once sales and admin time are subtracted |
Freelancers and independent contractors pay both the employer and employee share of FICA taxes: 15.3 percent self-employment tax on net earnings, plus federal and state income taxes. Factor in non-billable time spent on sales, administration, and professional development, and a $75 hourly rate does not translate to $75 in pocket. The rate has to be high enough to cover all of that and still clear your actual income target.
Once you have your required rate, check it against what the market will bear for your skill set and region. If the market rate is below what you need, the options are straightforward: reduce business expenses, increase your billable efficiency, or target higher-value clients. Pricing below your required rate might win projects in the short run. It tends to create a cash flow problem that compounds quietly until it does not.
Run the calculator's own defaults: a $90,000 income target, $8,000 in annual business expenses, 25 billable hours a week, over 46 working weeks a year.
In plain terms, hitting a $90,000 take-home target on a freelance income means billing close to $111,000 gross, spread over just 1,150 billable hours. That is why a freelance rate always looks steep next to a comparable salary, it is doing the job of a paycheck, a benefits package and an accounting department all at once.
Work backward from target income plus expenses and SE tax, over realistic billable hours.
It covers self-employment tax, expenses, no PTO and non-billable time.
Often 20-30 a week, not 40, after sales and admin.
No, it's a rate estimate. Talk to a tax professional about your actual self-employment tax and quarterly payments.